This is Why Lenders Are Not Offering Loan Modifications

by Moe Bedard on October 2, 2007 · 6 comments

in Home Loan News

I get a lot of thank you emails and I get quite a few hate emails. Yeah, hate emails. There are a lot of people that are 110% against the homeowners and feel that ALL the people that bought these homes with these toxic loans should just suffer their fate and shut up. They think that ALL homeowners who are going into foreclosure deserve this and they should have never bought the home in the first place.

I’m not going to share the all the emails, but I thought I would post this email from a gentleman that claims to be an executive for a major lender and is on the inside of what “really” is going on and why lenders do not want to offer loan modifications.

The email was short and to the point and I feel it really explains it all. Please read this very carefully and understand that we are all in deep you know what, if government doesn’t stop this irrational and reckless behavior.

LENDERS ARE LYING TO THE AMERICAN PEOPLE AND TO THEIR INVESTORS!

Email Copy:

The problem is the way the loans are booked. If you foreclose, you have a paper asset that is (probably) worth more than the liability (uncollectible loan). You can spend a lot of money to liquidate that paper asset — and so long as the paper value stays the same, the money is well-spent. Then, three years down the line, when the account manager who refused to do the short sale is long gone, you finally sell the house and eat the loss.

In other words, your choices are:

1.) Foreclose and postpone the loss for years, during which time anything can happen.

2.) Short sale or loan modification and recognize the loss immediately.

Which one do you think someone who wants to keep their job will pick?

Tagged as: Home Loan News

{ 6 comments… read them below or add one }

1 Paul October 2, 2007 at 11:59 pm

This is one likely explanation for what would otherwise seem to be insane behavior.

2 Paul October 3, 2007 at 12:02 am

The stock market took one big hit when this started… wait until the Holiday “spending” numbers are out… and watch the second hit to Wall Street.

3 Theresa October 4, 2007 at 8:53 pm

I have some potential foreclosure problems of my own. I do not work for a bank or any other mortgage related industry – that’s my independence disclaimer.
I have to say that I think the email copy comment in the ‘email copy’ above is way off base. I question the sender.
If the paper asset is worth more than the uncollectible loan amount, and the bank holds the asset (as opposed to liquidating) yes there is the ability to defer the loss, but.. we’re forgetting the cost of carrying the loan. How do we account for the interest that is not being paid on the loaned amount? What about property taxes? If the bank owns the house, they are responsible for taxes. Then there is the whole insurance and liability issue. I have a hard time believing that a bank is intentionally trying to sit on empty houses just to defer a loss.
They are incurring a current loss on the money tied up in the house, not to mention subjecting themselves to potential vandalism and other costs to keep the properties up. What about HOA dues. Who’s out there making sure the weeds are taken care of.
I also think that there is not a lot of money in being a landlord and collecting rent. Banks aren’t going to intentionally put themselves in a position to keep watch over such small potatoes..

4 Paul October 4, 2007 at 9:53 pm

Being a landlord is not profitable when you do not want to be one… that’s true. But if you make it your business to be a landlord, and not just a landlord but a huge corporate one, and hire all the out of work mortgage people to become property managers, then you have a gold mine. Your giant corporation would set the rent prices, the sales prices, and the poor tenants would rely on the same unscrupulous people who sold them loans to rent them homes.

- Paul

5 Moe October 4, 2007 at 10:45 pm

Thanks for the independence disclaimer. I like that one.

I truly feel the motives serve a dual purpose. One would be to defer loss. Why? Because if they “really” modified more mortgages and cooperated in more short sales, they would have to report these losses to investors. The numbers and the losses are gargantuan. It would cause the market to panic and drop their stocks even more, making may lenders stocks worthless, thus putting them out of business. So, essentially it’s a stall tactic to recover from the massive bleeding that they are suffering. However foolish, they must do it so they do not die a painful death.

The second purpose would be to suffer the losses on the taxes, HOA fees, and lawn care to become massive real estate holders. They will not only control the lending industry, now they will control how and when real estate is sold and the money that is being borrowers on those homes that they sell. Talk about the kings of monopoly.

So, how can that not be lucrative to control every loan that is made on each one of those homes you own?

Think about that.

We are not talking about one loan. We are talking about in 2-3 years when Mr. Jones refi’s again, they will get that loan if they do their job and if they own real estate on every corner they can cut their multi million dollar advertising budgets in hold because when you call that sign, your going to get a Countrywide or Bank of America Real Estate agent who will sell you the home and do the loan. Oh, and he’s on salary now plus commission because he has to because all the other real estate brokerages are out of business.

Sounds pretty logical to me to make watermelons out of small potatoes. They just need some time in their laboratories.

6 Moe October 4, 2007 at 10:46 pm

Well said Paul.

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